Mortgage availability falls to 10-year low as half of loans pulled from market

Home buyers have seen their mortgage options halve in the last 12 months, with the number of loans available falling to a 10-year low.

Mortgage availability has drastically diminished since the start of the coronavirus crisis and there are now 2,259 loans on the market, according to industry analysts Moneyfacts. This represents a 54pc drop compared to last October, when there were 4,955 deals available.

The number of home loans has fallen for four consecutive months and is now at the lowest level since May 2010, when the mortgage market was recovering from the financial crash.

Small-deposit mortgages have all but disappeared as banks limit their lending to customers they perceive to be less risky. Most banks will no longer lend to borrowers with less than a 15pc deposit. Just 51 mortgages are available to borrowers with a 10pc deposit, and many of these are restricted to building society customers buying in their local area.

As well as restricted choice, borrowers have seen mortgage rates rise for a third successive month, Moneyfacts found. 

The average two-year fixed-rate loan now has an interest rate of 2.38pc, well above the 2.02pc average recorded in June. Five-year fixes have increased from 2.26pc to 2.62pc in the same time frame.

A separate report published by the Financial Conduct Authority, the City watchdog, said the current mortgage market disruption was comparable to the last recession.

The regulator said the drop off and recovery of the market had been much faster than previously, but it warned this could be thanks to the pent-up demand caused by the spring lockdown.

Eleanor Williams, of Moneyfacts, said the stamp duty tax break had also contributed to strong activity in the mortgage market, despite rising rates and reduced availability. She said more than 150 mortgages had disappeared in the last month alone.

“The spectre of negative equity should house prices drop from their current levels is one that responsible lenders will be keen to mitigate, yet have no control over,” Ms Williams said. 

“Similarly, uncertainty around future employment levels and income as Government support schemes begin to unwind is another factor lenders may be considering.”

As well as prospective buyers, heavily indebted homeowners have also suffered during the pandemic. Another study by Experian, the credit referencing agency, found that those who asked for payment breaks have 30pc more property debt than those who have weathered the crisis without support.

About half of people who requested a payment break from their bank have suffered lost income, the firm said.

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